Am I being taxed correctly? A Tax Code guide

Am I being taxed correctly? A Tax Code Guide

Tax doesn’t have to be taxing. But upon seeing your first pay check it can be quite a surprise to see how much HMRC is taking away. In some cases, the amount of tax paid is incorrect so it is important for you to pay close attention to your tax code.

What is a Tax code?

According to HMRC a tax code is used by your employer to determine how much income tax to take from your pay or pension.

It is usually represented as a letter and a number:

Number – this is your personal allowance i.e. how much you’ll be able to earn without paying tax. For this tax year (2017/18), the allowance is £11,600, as a result the number on the majority of pay slips will be 1160. If you are paid monthly, this equates to £967 earned each month before tax can be applied

Letter – each letter varies, but it translates to how much tax you need to pay.

What should my tax code be?

Tax codes can vary depending on what your individual circumstance is. Below is a list of the most common letters and what they mean for your tax liability:

L – this is used most commonly.

M or N – Marriage allowance. Married couples or those in civil partnerships can transfer 10% of their personal allowance to their partner.

BR/D – More than one source of income. This income could come from a second job, pension or money from investments. BR is for the income which is taxed at 20%, D for 40% tax.

K – means that you are paying owed tax from a previous tax year.

0T – Your personal allowance has been used up or you’ve started a new job and your employer doesn’t have the details to give you a tax code.

W1 or M1 – Emergency tax code. This usually happens when your correct tax code has not been worked out before your first payday – however this would usually be updated automatically.

What to do if it's wrong?

If you think that your tax code is wrong you can use HRMC’s online service to check and communicate to them that it’s incorrect.

If through the tax year your circumstances change resulting in you paying the incorrect amount of tax, HMRC will send you a P800 or Simple Assessment letter which will show you how to get a refund or pay any tax you may owe.

To check your tax position for previous year click here and if you are due a refund you can claim through here.

• The type of account is called “Regular savings”
• This is great if you want to save for future gradually and not have to temptation to draw down on the funds.
• Because of the restricted access if you take the money out then you would be relinquishing the higher interest rate you receive.
• Rates can be up to 5%, but there is a cap on how much you can save each month.
• These accounts are usually exclusive to customers from a certain bank, so you may have to open up a current account with this bank.